What Are ACH Payments? Direct Deposit vs Direct Payments

If you are a small business owner, paying and getting paid are likely two of your top priorities. Many organizations use the ACH payment method to accomplish these tasks. However, there are still numerous entrepreneurs who have not taken the time to learn the nuts and bolts of ACH payments and how they work. 


In this article, we’ll discuss all things ACH, from how they work, different categories and types, cost, and the time it takes to process them. So whether you’re a small business owner looking for a payment solution or just curious about this banking process, read our quick guide for a comprehensive understanding.


What Are ACH Payments?


ACH payments are electronic payments processed through the Automated Clearing House network. This network is overseen by the Federal Reserve and utilized by financial institutions to process transactions. The ACH network is a secure system that facilitates the electronic movement of money between bank accounts across the United States. Its processing infrastructure is managed by Nacha, a not-for-profit organization that sets the rules and guidelines for the network. 


More than 10,000 financial institutions participate in the ACH network, which processed over 29 billion transactions totaling more than $72.6 trillion in 2021. And this volume has steadily increased by more than $1 billion every year for the last seven years. 


ACH transactions are typically used for direct deposit of payroll or tax refunds, bill payments, and other one-time or recurring payments. They are settled in batches, often multiple times per day. The ACH network is affordable but has some drawbacks when compared with other payment systems. Its usage has grown steadily in recent years.


Categories and Types


There are two main categories for ACH: direct deposits and direct payments. The main difference between these lies with who initiates the transaction. Direct deposit is the most common type of ACH payment. When you receive a paycheck from your employer, the funds are deposited into your checking or savings account via direct deposit. This is a convenient way to receive your paycheck and allows you to access your money as soon as it is deposited into your account.


Direct payment is when money is electronically withdrawn from a payer’s bank account and transferred to a payee’s bank account. For example, you may use a direct payment to pay your rent or utilities or to make a purchase online. Direct payment is also convenient for sending money to friends and family members.


ACH transfers are a type of electronic funds transfer (EFT) that moves money between financial institutions. ACH transactions are transferred via credit or debit. Credit transfers are initiated by the payer and include payroll processing, tax transactions, and payments for utilities and mortgage loans. 


The payee initiates a debit transfer. The most common types of debit transfers include online bill payments and check conversion. With online bill payment, the payee authorizes the biller to withdraw funds from their account to pay the bill. 


In a check conversion, the payee authorizes the merchant to convert the paper check into an electronic payment like FINSYNC Digital Lockbox. Debit transfers are convenient for both payees and payers. However, it is vital to note that when a debit transfer is initiated, the payee is authorizing the payer to access their funds, so be sure that you trust the payer before allowing a debit transfer.


ACH payments are convenient because they are processed quickly and securely and are less expensive than other payment types, such as wire transfers


ACH Processing Time


The funds are not received immediately after posting an ACH transfer. The ACH network operator processes these transactions in batches up to seven times a day, and your bank may take one or two business days to post the transfer to your account. Many ACH processors connecting to financial institutions move funds to a clearing account before the destination. Therefore, if you make an ACH transfer on Friday afternoon, your recipient might not see the funds until Tuesday or Wednesday morning if there are no bank holidays to consider. 


If you need to make a transfer that will be processed immediately, you’ll need to use the wire transfer system instead. Wire transfers are processed in real-time, meaning the funds are transferred immediately. However, they can be expensive, sometimes costing $30 or more per transaction.


ACH Transfer Fees


Automated Clearing House (ACH) transfers are a common and convenient way to move money between bank accounts. But what do they cost?


Generally speaking, ACH credit transfers are free or very low-cost. Many banks will charge around $3 for an external transfer, but many also offer them for free. There is usually no fee to receive an ACH transfer. Checking with your bank or payment platform is essential to determine what fees might apply before you initiate a transfer. FINSYNC’s ACH transaction fee is 50¢ whether you are sending money for a bill payment or receiving money when someone pays your invoice.


ACH debit transfers, such as payroll and most bill payments, are typically free. If you need expedited bill payments, there can be fees.


Person-to-person payments that you initiate through your bank or third-party apps such as PayPal can cost a small fee, depending on the platform and payment method. But overall, ACH transfers are a cheap and easy way to send money between accounts.


If you are looking for a more convenient and affordable way to send or receive payments, ACH Payments may be the right solution for your business. We hope that this information has been helpful and provided you with a better understanding of what to expect when using ACH Payments. 


How FINSYNC Can Help


The FINSYNC software allows you to run your business on One Platform – invoice customers, pay bills, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.


Helping small businesses is our core mission at FINSYNC.

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